As a key May deadline for spot Ethereum exchange-traded fund (ETF) applications in the U.S. draws closer, shares of Grayscale’s Ethereum Trust (ETHE) appear to have found firmer footing.

As of Friday, shares in Grayscale’s ETHE traded at a 22% discount relative to the funds’ crypto holdings, according to data from YCharts. Since March 22, that discount has ranged between 21% and 26%, widening from as little as 8% earlier that month.

Many crypto market analysts have expressed doubt that spot Ethereum ETFs will be approved in the U.S. in the short term. We will know soon enough, as the Securities and Exchange Commission (SEC) will be required to respond to its earliest applications for such a product from asset manager VanEck by May 25.

Mark Connors, head of research at digital asset investment firm 3iQ, told Decrypt that ETHE’s steadying discount reflects “not only pricing in the downside of regulation, but [also] the upside of industry action.”

Meanwhile, approval odds for spot Ethereum ETFs in May have declined from 76% in January to 6% on Monday, according to traders on the prediction platform Polymarket. Those chances haven’t been helped by revelations in April that the SEC internally views Ethereum as a security.

Approval odds for spot Bitcoin ETFs were initially boosted last year by Grayscale’s courtroom victory over the SEC. The judge found the agency’s previous Grayscale denials to be arbitrary and capricious. That decision paved the way for a slate of spot Bitcoin ETF approvals in January—including the conversion of the Grayscale Bitcoin Trust (GBTC).

By shorting Bitcoin while holding GBTC, investors were able to capitalize on GBTC’s waning discount, Conors explained. As to why ETHE’s discount has remained little changed over the past several weeks, Connors said some could be posturing for a repeat—even if that means holding ETHE through any litigation that might follow the expected denials from the SEC.

“People have been rewarded for that,” Connors said, referencing institutions that traded GBTC through its eventual conversion to an ETF. “There's a load of hedge funds that know this trade.”

As once was the case with GBTC, ETHE trades at a discount or premium relative to its crypto holdings because of the fund’s structure. Without a mechanism in place for the creation or redemption of shares, ETHE’s discount swelled to as much as 60% in early 2023.

Each share of ETHE corresponds to approximately 0.0094 Ethereum—worth around $29. Because of the fund’s structure, however, ETHE shares currently trade hands at $22.50.

Alongside VanEck’s bid to establish a new spot Ethereum ETF, Grayscale wants to convert its fund into one as well. They are among several firms waiting on the SEC for a response, including BlackRock, Fidelity, Hashdex, Invesco and Galaxy, and Ark Invest and 21Shares.

Edited by Ryan Ozawa.